The World's Cheapest Investments? What are they?

ringledman

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So what assets out there in the world are dirt cheap and ripe for investment at present?

Where can a value investor find really 'dirt cheap' value today? I'm thinking highly undervalued assets, not those that are considered as 'fair value'.


My take is that there are very few places -


Property - Germany and Japan only. Perhaps US property is getting to 'fair value' but property always undershoots fair value before rising again.
http://www.economist.com/businessfinance/displaystory.cfm?story_id=15179388
A yield of 10%+ represents undervalued IMO.

Stocks - Japanese (Particularly Japanese Smaller Stocks that sell at below book cost and are now at 1990 prices).
http://www.investmentu.com/IUEL/2010/February/japanese-stocks.html
http://www.investmentu.com/IUEL/2010/February/investing-in-japan.html
It doesn't get much better than a 20 year bear market for creating value.

Bonds - Virtually nowhere! Maybe emerging markets and corporate bonds are at 'fair value' but I can't see many really cheap bonds out there. Western government bonds are a bubble set to explode and highly overvalued IMO.

Commodities - Probably fair value for most. Agricultural soft commodities are probably the only really undervalued commodity play today.


Personally I cannot see anything in the world as cheap and 'Underowned, Undervalued, Unloved and Ugly' as Japanese stocks. These have great investment potential IMO.

Any thoughts on these or other areas ripe for the long term investor? and reasons - i.e. markets on unbelievably low P/Es, Property at exceptionally high yields?

Not markets or sectors that seem reasonably valued but those that are seriously undervalued and hated as investments by the majority or public, thus ready for their next boom.
 
i have been looking at japan as an investment for a while now any thoughts on etfs looked at some on ishares small cap and large obviously in for the long term as i am a novice investor.
 
i have been looking at japan as an investment for a while now any thoughts on etfs looked at some on ishares small cap and large obviously in for the long term as i am a novice investor.

Hi, I'm not too sure on ETFs. Personally I am a bit concerned about holding them long term as they don't always represent the index correctly or actually hold the shares you think they do -

[broken link removed]

I am investing in a HSBC Japan Index here in the UK. It has really low charges. This tracks the mega caps like Toyota and Honda.

I am also investing in some funds that track the small caps as this is where I feel the greatest returns will come over the next decade. These have higher charges in the order of 1.6%.

I don't think the market will boom in Japanese stocks for a few years so it gives a good period to build up a pot over the next few years.
 
Ringledman,

A certain number of American listed chinese companies (Chinese ADRs) are selling for a song at the moment. Though they are fierce volatile I reckon there is good long term value in them.

I am also looking at cyclical companies at or near a cyclical low. Shipping, both dry bulk and container are a good value bet at the moment providing you chose them well (avoid DRYS, ONAV, SBLK for example) and buy in at appropriate support points. Some pay a hefty dividend also which is an incentive to stay invested until the inevitable upturn comes. I think with the likes of shipping we will be waiting a couple of years to recover.

I am also looking at STEC, a NASDAQ listed California based SSD maker. It has been hammered by shorts of late but it is in a good sector IMO and is only selling for 7 times '10 earnings.

A little specific but a couple of little ideas. I am a value investor so any ideas are appreciated.

Dave
 
Hi Dave,

Cheers for the info. I often read that there are dirt cheap chinese firms but the index is often pereceived as being expensive!

I assume the cheaper firms are in the small to medium size bracket?

Do the shipping companies share prices follow the baltic dry index? Which do you think are good value?

Back to the original question, the Russian market was trading at an unbelievably low P/E of around 4-5 last February when oil hit 40 a barrel! I held in and have made a decent return considering I was in before the crash!

Otherwise I think there is decent value in large cap defensive global firms in telecomms, pharmaceutical, tobacco, insurance, oil&gas, etc. A lot are on a P/E of 8-12 and yield 4-5%. Not dirt cheap but fairly valued. The likes of Johnston & Johnstone, Vodafone, Tesco, Glaxosmithkline, etc.

Anyone else?
 
Rahter than get into discussion on a specific stock (banned on AAM, btw), I would suggest to you that any stock that has attracted the attention of short sellers should be avoided - these guys know what they are doing and there generally is a good reason for them going short. Besides, there are plenty more fish in the sea.

Ringledman,

A certain number of American listed chinese companies (Chinese ADRs) are selling for a song at the moment. Though they are fierce volatile I reckon there is good long term value in them.

I am also looking at cyclical companies at or near a cyclical low. Shipping, both dry bulk and container are a good value bet at the moment providing you chose them well (avoid DRYS, ONAV, SBLK for example) and buy in at appropriate support points. Some pay a hefty dividend also which is an incentive to stay invested until the inevitable upturn comes. I think with the likes of shipping we will be waiting a couple of years to recover.

I am also looking at STEC, a NASDAQ listed California based SSD maker. It has been hammered by shorts of late but it is in a good sector IMO and is only selling for 7 times '10 earnings.

A little specific but a couple of little ideas. I am a value investor so any ideas are appreciated.

Dave
 
Hi Mark, Ringledman,

Mark, I take your point and no doubt shorts do tend to destroy a stock. That said however, shorts cannot stay on a stock forever and do not, they tend to move on once the ineveitable short squeeze occurs. To this end it may be worth look. That STEC stock that I mentioned earlier is being hammered in pre-market as I write this for reasons you will discover if you have a look. I do believe it is a good medium term buy and getting in in the single figures is a gift.

I would have to agree Ringledman, certain Russian equities have seriously outperformed there over the last 12 months. It is still a relatively undervalued market. Some of their ADR's are reasonably priced - VIP is a telecoms company, second largest to MBT (I think is the ticker). Its in the IBD 100 (not that that is a reason to buy - so was STEC and look what happened to it!). I bought MTL in the 7's. It has flown since then. Biggest miner in Russia. Very volatile though.

On the Chinese front, yes, small and medium caps are what I have been looking at and across different sectors. CSR is one that I do fancy for the medium term. It has pulled back significantly this past 4 weeks and may pull back more. FEED and SOL I feel may also be fairly priced. Problem with these stocks is you may get shaken out if your time horizon is too short. They are very volatile. APWR may be worth a look if the sector interests you.

Shipping stocks I look at, and unfortunately all of them, even those that have their rates locked in, follow the BDI. Some to a greater extent than others depending on the level of Capesize exposure they may have as this index seems to fluctuate more. I would be pretty conservative though as you could see consolidation in the next 2 years. Companies I have bought are liquid and are still paying a dividend. These are NM, PRGN, ESEA and NMM. NM is pricey, though I got in early last year, PRGN and ESEA I think are fairly priced. PRGN has its rates locked in and ESEA is a conservative family run dry bulk/container company with lots of cash on hand. It has also set up a joint venture with hedge funds to expand its fleet (would advise reasearching this as is complicated). NMM is a partner of NM run by the same CEO as NM. I do beleieve NM is the best run shipper in its class.

Finally I do think Dragon Oil is a good long term buy. I'll say no more about why as this is a more commonly known stock unlike the others mentioned above which do not trade in Europe (hence the reason I have provided more detail on them - apologies in advance if I cannot discuss any stock on the planet on this message board)

Dave
 
The problem with heavily shorted stocks, as you can see in this case, is that once these guys sink their teeth in, they hardly ever let go. Even if they do let go, data on short interest is usually 1-2 months late for the general public to react so you end up buying after a short squeeze, which can inflate the price to unrealistic levels.


Hi Mark, Ringledman,

Mark, I take your point and no doubt shorts do tend to destroy a stock. That said however, shorts cannot stay on a stock forever and do not, they tend to move on once the ineveitable short squeeze occurs. To this end it may be worth look. That STEC stock that I mentioned earlier is being hammered in pre-market as I write this for reasons you will discover if you have a look. I do believe it is a good medium term buy and getting in in the single figures is a gift.

I would have to agree Ringledman, certain Russian equities have seriously outperformed there over the last 12 months. It is still a relatively undervalued market. Some of their ADR's are reasonably priced - VIP is a telecoms company, second largest to MBT (I think is the ticker). Its in the IBD 100 (not that that is a reason to buy - so was STEC and look what happened to it!). I bought MTL in the 7's. It has flown since then. Biggest miner in Russia. Very volatile though.

On the Chinese front, yes, small and medium caps are what I have been looking at and across different sectors. CSR is one that I do fancy for the medium term. It has pulled back significantly this past 4 weeks and may pull back more. FEED and SOL I feel may also be fairly priced. Problem with these stocks is you may get shaken out if your time horizon is too short. They are very volatile. APWR may be worth a look if the sector interests you.

Shipping stocks I look at, and unfortunately all of them, even those that have their rates locked in, follow the BDI. Some to a greater extent than others depending on the level of Capesize exposure they may have as this index seems to fluctuate more. I would be pretty conservative though as you could see consolidation in the next 2 years. Companies I have bought are liquid and are still paying a dividend. These are NM, PRGN, ESEA and NMM. NM is pricey, though I got in early last year, PRGN and ESEA I think are fairly priced. PRGN has its rates locked in and ESEA is a conservative family run dry bulk/container company with lots of cash on hand. It has also set up a joint venture with hedge funds to expand its fleet (would advise reasearching this as is complicated). NMM is a partner of NM run by the same CEO as NM. I do beleieve NM is the best run shipper in its class.

Finally I do think Dragon Oil is a good long term buy. I'll say no more about why as this is a more commonly known stock unlike the others mentioned above which do not trade in Europe (hence the reason I have provided more detail on them - apologies in advance if I cannot discuss any stock on the planet on this message board)

Dave
 
Hi Dave,
Otherwise I think there is decent value in large cap defensive global firms in telecomms, pharmaceutical, tobacco, insurance, oil&gas, etc. A lot are on a P/E of 8-12 and yield 4-5%. Not dirt cheap but fairly valued. The likes of Johnston & Johnstone, Vodafone, Tesco, Glaxosmithkline, etc.

Anyone else?
Ringledman,

Great topic and timely. Now that the media have stopped hyping investment performances is a cue to any canny investor that this may be a more interesting time for investing- now that the mania of recent years has receded a bit.

I think you are on the money with your defensives strategy above. As you say they are fair value, and particularly those with cash on the balance sheet should be able to expand judiciously over the coming years as the world economy slowly emerges from the grim prospects of a recession (or indeed depression as looked omininous early 2009).

Other stocks to me look over priced for a recession flat growth world. Not sure about Chinese ADRs or Japanese small-mid caps but defensives are a nice area to be in now IMHO.
 
Hi Daithi,

An interesting macro view can be listened to by Barton Biggs on this link -



He thinks the global mega caps are very well priced currently.

There are a wealth of interesting posters on this website. Also the MadHedgeFundTrader does an interesting daily written blog.
 
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